Americans will buy anything, but why not homes?

Opinion: The answer lies with young people, many of whom could afford it

By

TimMullaney

Writer

AFP/Getty Images

Last week brought tons of good consumer news — and one big puzzle.

May auto sales came in strong amid predictions Americans will soon buy cars and light trucks at a 17 million-per-year pace again. May’s employment report was solid, with 217,000 new jobs. And late Friday came news from the Federal Reserve that we’re whipping out the plastic again: Revolving debt grew at a 12% annual clip in May.

After years of retrenchment, U.S. consumers are lightening up — but still not buying homes. And their aversion to housing is the gap between the recovery we have and the recovery we want.

Take the jobs-report headline — that the U.S. finally employs as many people as in 2008. It obscures the less-pleasant fact that construction employment remains 1.72 million lower than its peak, at 6 million, and grew only 6,000 last month. Along with the 700,000-worker drop in government employment, construction is the difference between our 6.3% unemployment rate and one as low as 4.8%.

A house is the only major item consumers aren’t buying. Existing homes sold at a 4.66 million annual rate in the first quarter, down from 2013’s 5.09 million. New homes, which create three to four jobs per sale, sold in April at a 433,000 annual pace, according to the Census Bureau, half of pre-bubble levels.

Why? For all the fuss about student loans, mortgage rates and wage growth, affordability is fine. The median income needed to buy a home nationwide is $44,174, according to the National Association of Realtors, and the median family income is above $51,000. Average home buyers’ income is $83,300, NAR says, and even first-time buyers earn $64,400.

Besides, cars are selling even though new studies and reports question whether they are really affordable.

In Dallas, a city that loves America’s most popular line of vehicles, a Ford F-150 pickup with EcoBoost engine and a double cab costs $657 a month, according to Truecar.com. The payment on the median Dallas-area home is $850 to $1,000 per month, depending on loan terms, including taxes. If a family can afford a truck, it can afford a house.

So it’s something else. But what — and how can we fix it?

Credit, while getting easier, is still too tight.

The average credit score on a new Fannie Mae-backed loan is 740, down 18 points since 2012 but still 32 points higher than before the housing bubble began. It’s not normal. The average credit score for a new-car loan is 714, with the used-car average at 641.

A full third of new-car loans and almost two-thirds of used-car loans now go to subprime borrowers, credit agency Experian says. Less than 2% of new mortgages are subprime, versus a pre-2006 average of 7%.

The lesson? No risk has bred no reward.

Banks have held the reins tight out of worries that Fannie Mae and Freddie Mac will make them take back mortgages that go bad, Moody’s Analytics chief economist Mark Zandi says. He thinks that fear will fade as banks adjust to new regulations limiting their responsibility. They need to adjust fast.

Job growth for young people is too weak.

Employment among 25- to 34-year-olds, the prime age group for housing demand, was at 75.3% in May, down from 76% in February, Trulia.com chief economist Jed Kolko says. Before the bubble, that figure was as high as 80%. Of jobless young adults, 20% live at home, he says. That’s why 1.6 million more young adults live at home than in 2007. It’s 400,000 fewer than in 2012, but still too many.

People have too much debt. Specifically, too many homes are still underwater.

About a fifth of all homeowners with mortgages owe more than their homes are worth, Navy Federal Credit Union economist Alan MacEachin says. They can’t or won’t move until they are more solvent, he says. And no solution is coming here, as political momentum toward loan forgiveness evaporated years ago.

Housing has to pick up more for the economy to get really moving. Another 20% gain in single-family construction — not unrealistic, since it rose that much in 2013 — would make a 400,000 job difference.

Banks have to take modestly more chances, regulators have to let them, and young adults need to man up. The toe-in-the-water confidence that seems to be driving young workers out of their parents’ houses and into apartments needs to translate into buying houses.

Tim Mullaney writes on the economy, health care and technology. Follow him on Twitter @timmullaney or contact him at tim.mullaney@outlook.com

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